Turkish Bonds Rise as Central Bank Presses on With Easing Cycle

(Bloomberg) -- Turkish bonds advanced for the first time in five days after the central bank cut borrowing costs, continuing a cycle of monetary loosening it started in March.

The yield on the nation’s 10-year bond fell eight basis points to 9.79 percent on Tuesday. Policy makers earlier lowered the overnight lending rate by 25 basis points to 8.5 percent, matching the median estimate of 21 analysts surveyed by Bloomberg. They left the benchmark repurchase and overnight borrowing rates unchanged at 7.5 percent and 7.25 percent.

Turkish markets have rebounded as the turmoil that followed an attempted coup last month waned and the promise of higher yields than those on offer in developed markets lured foreign investors back into the nation’s assets. This has given policy makers room to reduce the overnight lending rate, the top end of its interest corridor, by 225 basis points since March.

“The central bank will continue to make the most out of a relatively favorable external backdrop to lower rates and to support economic activity,” Piotr Matys, an emerging-market strategist at Rabobank in London, said by e-mail.

The rate cut comes even as inflation accelerated for a third month in July, eating into returns on the nation’s assets. The central bank said the core inflation trend is "expected to improve gradually" in its statement accompanying the decision.

The Treasury in Ankara sold five-year fixed coupon debt on Tuesday. The bid-to-cover ratio in the auction climbed to 3.06, the highest since November 2015.

To contact the reporter on this story: Constantine Courcoulas in Istanbul at ccourcoulas1@bloomberg.net. To contact the editors responsible for this story: Samuel Potter at spotter33@bloomberg.net, Chris Vellacott, Daliah Merzaban